Chapter 5 - In-Class Examples

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Nov 19, 2023
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Consolidation - Subsequent Years we will need to know how the parent keeps track of the investment in subsidiary there are 2 methods available a) cost method no adjustments b) equity method adjustments will be made to the investment in sub for studies purposes, we will learn the consoldiation when the investment in sub is kept under the cost one of the major differences when sub declared (and paid) dividend cost method parent record Cash xxxxx dividend income xxxxxx equity method parent record Cash xxxxx investment in sub xxxx Steps of consolidation Step 1 - calculate the acq differential at the time of the acquistion. Step 2 - information gathering for the consolidation Step 2a - amortization of the acquisition differential (including goodwill impairment) Step 2b - list all the intercompany transactions that result balances showing on the year of consolidatio 99% of the time, intercompany transaction will result - mirror balance 1 company - will record as revenue the other will record as expense why we will remove them! we do not want to overstate or understate the balance by intercomp except 1 intercompany transaction which will only result one side adjustment (parent's f/s) Dividend - parent's have to remove the dividned income from the income statement Step 2c - unrealized / realized gain/profit/loss from intercompany transaction sale of inventory, nondepreciable (in chapter 6); depreciable asset (in chapter 7)
we will prepare the consolidated statement of comprehensive income consolidated statemetn of r/E Consodliated SFP Notes: Step 2a - amortizaion of the acq differential amortization - reduction - do we need to reduce the value of the acq differential when do we "amortize" acq difference- FV differences a) when the sub dispose, derecognize, sold the related asset/liabilities (applies to all ass question has to give specific information when the asset/liablities is derecongized. EXCEPT, Inventory - assume using FIFO b) applies to depreciable asset - which the sub still holds it and uses it FV difference of the depreciable asset will be amortized over the useful of the dep asset c) applies to Debt - complicated - requires that you prepare the amortization schedule based market int 1 2 3 4 5 Acq differential balance as at Acc. Amort Current year balance as at the acq date from day 1 to amortiation consolidated dat date before the consolidation Jan 1, Year 1 Year 1 to Year 5 Year 6 Dec 31, year 6 inventory xxx PPE xxxx trademark xxx Goodwill xxx column #3 will be used to calculate the consoldiated r/E at the beginning of the year
t method on pany transaction
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